I get the fact that people read these points and think that maybe they are right. The sad thing is the only people involved in this report were the big banks, in particular CBA. They drove the whole thing. The RC started to look at the things the big banks had done and to fine any irresponsible lending. Now brokers commissions have hit the spotlight. To put it in perspective brokers previously many years ago got larger upfront commissions. Then the banks themselves said people were refinancing too much and there was no incentive long term to look after customers so they changed it to a lower upfront and then a trail commission so the customer was looked after long term. This model works well and quite often people will call me to refinance and it is not in their best interest so we keep them with their existing lender. Also existing clients consume at least half of my day with questions, scenarios etc so the trail income actually helps pay for these tasks. The RC made it out like brokers kick back and make a lot off the trailing commissions however after the report came out the big broker firms and aggregators have released a lot of data and the average earnings per annum in the whole of Australia is $100k. This is not a huge salary and trust me for the hours most do and running their own businesses it is not a get rich quick job. Like most industry's the bigger guys writing lots of loans in Sydney and Melbourne sure are making a lot of money but it shows if the average is $100k per annum then there is a lot of people also making a lot less income. If trail goes it will just mean a lot of people will constantly refinance and it will go back to the old model which does not work. I also know many businesses who literally pay a full time staff member just to look after existing clients and the trail allows them to do this. For those of you who are with a bank, do they ever call you and offer a better rate or if the fixed rate is coming up do they call and tell you their specials? No, they give you the crappiest and highest variable rate they can. Brokers actively call people and make sure they are getting a good deal. At least that is what we do, and I know a lot of others who do also.
Also there has been speculation that some banks pay more than others so brokers are skewed to write deals to those who pay more commission. This is simply not true, the difference in commissions is absolutely bugger all, and if this is an issue I am all for the government making them all the same and so are other brokers that is no problem. There has also been a lot of data released showing out of the major banks ANZ pay the lowest, ironically they have the most broker loans out of any other bank. So go figure, that theory is dead now too. Truth be told probably 1 in 50 clients can go to any banks, most only fit a few due to them being self employed, earning overtime, age of the applicant, bad credit history, bad payment history, their house not valuing enough. These go on and on. So the fact is if you use a broker you will more than likely be found a solution, if you go to a bank direct you will more than likely be turned away. Also brokers 100% get given better rates than the public get given. This is purely due to overall power of the broker and the banks try and win the business. This will make competition so much less fierce and the consumer is just going to lose out.
In terms of higher leverage and higher default rates this is not true at all. Recent surveys have come out in the last week showing that 67% of customers have at one point been unhappy with their bank, 1% of customers are unhappy with their broker. Brokers work for you, not the banks. There are a lot of bigger firms out there like Aussie 100% owned by CBA, mortgage choice bulk owned by CBA, Rams owned 100% by Westpac. These guys are skewed in the products they give you, whether they admit it or not. But the independent brokerage firms who are family owned like mine genuinely care about the customer, the bulk of my book is under 80% and not one customer in over 1000 customers has defaulted in the last 5 years. Unless there is extenuating circumstances of things like cancer, job loss maybe people miss some payments or have to ask the bank for a repayment holiday. Interest only loans are governed by the government, on my book I have less than 5% of my entire client base on interest only, the banks direct were up A LOT higher that is why the government intervened.
Hopefully this gives some insight into a bit more than just what the RC report shows.
While I feel sorry for brokers, I highly doubt the commissioner’s recommendation would be made without good reason. I believe some of these include - from the interim report -
These outcomes, the commission states, are:
“Broker loans were reliably associated with higher leverage, even for customers with an identical estimate of risk.”
“Loans written through brokers have a higher incidence of interest-only repayments, have higher debt-to-income levels, higher loan-to-value ratios (LVRs) and higher incurred interest costs compared with loans negotiated directly with the bank.”
“Over time, higher leverage means broker customers have an increased likelihood of falling into arrears, pay down their loans more slowly and on average pay more interest than customers who dealt directly with the bank.”
If the above is in fact true, brokers are not, on average, adding value to their customers.
